Self-funding your small business? It’s how most of New Zealand’s 460,000 small businesses get started – and many keep running this way for many years. But if you’re putting your personal money into your business, you’re automatically limiting its growth and leaving it with minimal reserves. This makes it harder to recover from setbacks and harder to expand. The number one reason for small local businesses to borrow money? Because the owner doesn’t have enough income and cashflow through the business.
This is where a long-term can help you expand your business and lift it to a larger size, capacity and profitability. Small business owners are often nervous about debt, particularly when cashflow may be unpredictable – as it has been for so many businesses over the past eight years. The good news is that 89% of small businesses (six to 19 employees) and 95% of medium-sized businesses (20 to 49 employees) can access debt finance on acceptable terms.
What are the advantages of using long-term debt to grow your small business?
1. You can invest in the assets you need, when you need them. This could mean equipment, vehicles or other assets that can drive the growth of your company – with the right balance of debt and equity this type of borrowing can maintain your business’s strong financial position.
2. You can smooth out the ups and downs of seasonality and cashflow. Fixed repayments on a long-term loan mean you know what you need to pay: no lump sums and no nasty surprises. If you use the debt to invest in effective business drivers, your overall cashflow could improve significantly.
3. Build your business’s credit. When you use your own credit cards or store cards to purchase new computers or pay invoices, you’re enhancing your own credit rating but leaving your business without a credit record. By borrowing in the business’s name and paying back the debt, you’re creating a track record that makes it easier to borrow again when the need arises.
Obviously, as with any debt, it’s important that you have the ability to service the repayments. Give us a call if you would like to talk about lending – we can help you calculate what repayments your business could comfortably make. We can also show you how to make your business more attractive to lenders; with business banking in a boom period and the official cash rate at an all-time low, there’s never been a better time to apply.
By Hazel Jia